The user should initially pour money into a certain industry whose activities are vivid that after a certain period of time the investor will achieve profits. And the amount of investment will rely on the level of interest rate.
Portfolio investments are a bundle of securities embracing certain values, which owned by one of the investors and are invested by them in one of the economic areas to gain further profits. This is also full of twists and turns playground when the exchange rates fluctuate, or the expected dividends are received. The second way is subject to high risks.
The important point is that while the investor can access fully to participate in the management of the business entity, this kind of investment does not equip the investor the right to apply the tools of controlling over the enterprise from its side and therefore cannot assure that the investor may attain a long-term interest in further growth stage of the firms.
What’s in the portfolio
Portfolio investments contain shares of a corporation, bonds with diversified degrees of risk and collateral, securities, the benefits of which are settled and assured by the state. Put in another way, the predicament of portfolio investment can be viewed insignificant if the losses on the amount of the main contribution set against the financial receipts.
There can be shares of any certain kind within a portfolio, the structure can also be volatile if one sign up some papers to others. In this context, each of the securities is inadequate to ensure the achievement of this upshot. The main role of the portfolio investment of funds is to enhance the conditions for capital investment, while securities accumulated have special investment features that are in effect only in case of their successful combination and are impossible separately. What are the risks in the portfolio investment of funds
The stock market is the crucial form to waive funds to the economy from any country by virtue that the state and commercial banks do not have adequate funds to pour money into the economic branches.
Nevertheless, any investment decisions are bonded with certain risks, shown in the reduction in income that real and portfolio investments can brace against those that were expected. They are mainly related to financial losses or loss of profit, which necessarily appears at the time of the financial transaction if there is a high degree of uncertainty in the result.
To impede the predicaments that connect direct and portfolio investments, it is vital to apply the methods to decrease this trend: • The investment portfolio should be diversified (the shares that it contains are diverse); • Try to seek out additional information that relates to the facility; • Provision of self-insurance, which contains in the creation of reserve financing directed at covering possible losses; • Financial guarantees should also be assured as well as contracts for changes in prices in the direction unfavorable for the investor.
In conclusion, investment can be carried on in various forms. The difference between direct investment and portfolio investments is that the former presents a capital investment of real financial assets and the latter happens at the expense of assuring the investor’s solvency with a package of securities that are valuable. It can be deduced that portfolio investments are securities containing fundamental types and getting a certain assessment of their profitability.